March 2017 - Volume 11, No 125

March 20, 2017: Haft-Seen also spelled as Haft Sīn (the seven ‘seen’s’) is a tabletop arrangement of seven symbolic items traditionally displayed at Nowruz, the Iranian new year.

Summary

Equity Markets

Iranian equity markets remained mostly flat in IRR terms in February, whilst returning around 1% in US$ terms. Two key factors contributed to this market equilibrium: the IRR per US$ exchange rate has stabilized and real interest rates remain high due to structural issues in the banking sector. However, the month also saw a number of positive develop- ments in economic fundamentals that are worth noting.

Economic Review

This issue reviews the latest developments highlighted in ’s country report published by the International Monetary Fund in coordination with the Central Bank of Iran. In addition, we have included sections covering the latest macroeconomic data published by relevant organizations and senior macroeconomic strategists in a factsheet report, as well as an economic calendar released by local and international statistics centres.

1 Iran Investment Monthly Table of Contents 3 Market Overview 3 Market Insight

4 Performance & Updates

6 Sector Insight

9 Company Overview

10 Market Snapshot

11 TSE & Junior Market Performance

12 Top Ranked Companies

13 TSE Statistics

13 FX Movements

14 Iran’s Fixed Income Market 18 Economic Review

18 Latest Updates

20 Macroeconomic Data 21 Turquoise Partners

21 About Turquoise Partners

25 News & Views

2 Iran Investment Monthly Market Overview Market Insight March 2017 - Volume 11, No 125

Market Insight

Our fund had a very strong month in February, where we continued our positive start to the year by returning +3.50% and +4.10% net in EUR terms for the B and C share classes respectively. This compared favorably versus the (TSE), where our benchmark returned +1.70% in EUR terms over the same period. Our robust performance on both an absolute and relative basis in February takes the Fund’s year-to-date re- turns to +4.80% and +5.40% in EUR terms (for the B and C share classes respectively) versus +3.20% for the TSE. This month’s impressive return was driven by a combination of superior underlying stock selection (3 of our largest positions were up >5% in the month) and the tailwind of a strengthening IRR (up c. 2% against the EUR in February). The month of February is always a significant one in Iran as it is the most ac- tive for corporate forecasts for the upcoming Iranian New Year (commenc- Shervin Shahriari Chief Investment Officer ing March 21st). Under Iranian law, publicly traded companies are required to forward-project their earnings and the final month of the Iranian calendar year witnesses a host of companies announcing their next 12-month fore- casts. The divergence between sectors was particularly striking, where the banking sector faced ongoing pressures as several banks saw their tickers re-listed on the TSE following month-long suspensions as they incorporated IFRS standards. This topic was discussed in greater detail in last month’s report and our underweight position to the domestic banking sector was vin- dicated with closing down c. -34% on the first day of re-listing. In contrast, the petrochemical sector (which is our largest sector weighting) announced an impressive set of earnings forecasts, where this sector was one of the few to project positive earnings growth of more than 10%. As communicated in our recent monthly publications, we have been shifting the portfolio towards export-driven companies, where this move is proving to be successful as 3 of our largest holdings were up >5% last month, and where all 3 of the positions were recent additions to the portfolio (all pur- chased since Q3 ’16). Additionally, of our top 5 largest holdings, 3 of them are either outright Petrochemical companies or are classified as Diversified Industrial Holding companies, but which have a high degree of Chemical and Petrochemical exposure within their underlying businesses. As we look ahead to the Iranian New Year, we are happy with the current composition of our portfolio which remains underweight to financials and overweight to sectors and companies that will protect us in a weakening IRR environment going forward.

I would also like to take this opportunity to thank you for your ongoing part- nership and to wish you a very Happy Nowruz.

3 Iran Investment Monthly Market Overview Performance & Update March 2017 - Volume 11, No 125

Summary - February 2017 Market Capitalization (billion US$) 107 b$ TSE & Farabourse Junior Market Free Float 21% TSE & Farabourse Junior Market Number of Listed Companies1 556 TSE & Farabourse Junior Market Overall Index Performance (US$)2 1.1% (MTD) 1.8% (YTD) TSE Turnover (billion US$)2 2.7 b$ TSE & Farabourse Junior Market Dividend Yield (%) 11% TSE P/E 7 TSE

1 152 companies are listed in Over-The-Counter (OTC) or off-exchange market named as “Base Market” in Farabourse junior market which trading of these companies are done directly between two parties. 2 Calculated based on market IRR per US$ exchange rates.

Tehran Stock Exchange & Junior Market Trade by Value1 - February 2017

Iran Farabourse (Junior Market) Trade Volume (million US$)

Tehran Stock Exchange (Main Market)Trade Volume (million US$) US$ Million

Source: Tehran Stock Exchange Iran Farabourse Company All figures in US$ are converted from IRR at the free market rate 1 Trading volume month on month in US$ term - TSE includes mainly equity while Farabourse has more fixed income instruments and smaller equities.

Performance & Updates

Iranian equity markets remained mostly flat in IRR terms in February, whilst returning around 1% in US$ terms. Two key factors contributed to this market equilibrium: the IRR per US$ exchange rate has stabilized and real interest rates remain high due to structural issues in the banking sector. However, the month also saw a number of positive develop- ments in economic fundamentals that are worth noting. According to the chief executive of Iran’s National Oil Company, Iran managed to export 3 million barrels of crude oil and gas condensates per day and intends to boost exports to 4 million. Furthermore, the executive director of Iranian National Refining and Distribution Company announced that Iran would become an exporter of gasoline in the next Persian calendar year, 1396, (March 2017-March 2018). Current

4 Iran Investment Monthly Market Overview Performance & Update March 2017 - Volume 11, No 125 output levels of 400,000 barrels per day of petroleum products are set to reach 600,000 barrels per day in the next Iranian year. Renewed optimism on global commodity markets sparked a rally in companies in the Metals and Mining sector over the month, with increases in copper and iron ore prices boosting investors’ interest in related industries.

Market Activity1 The volatility of the index (as calculated using the standard deviation of the daily returns in US$ terms) was 0.5% for the TSE and 1% for the Farabourse in the month of February. Market activity increased 32% on the TSE and 101% on the Farabourse in the month of February compared to the previous month. The average daily trading volume on the TSE also rose 16% and 51% in US$ terms compared to the prior three months average.

Increases in the top sectors of the TSE in terms of traded value in rials compared to the previous month were led by Automotive (+55%), Chemicals (+50%) and Basic Metals (+20%).Top gainers in terms of quantity of shares traded were automotive companies and banks with volumes of 8 billion and 2 billion shares respectively. Banking sector trad- ing activity surged in February after a number of banking stocks returned to trading following a period of suspension.

Improved Corporate Earnings Forecasts for Next Year The majority of listed companies forecast better than expected earnings in their latest financial statements for the next Iranian calendar year. At the same time, falling stock prices corrected the market’s valuation ratios. According to our estimates, the market’s latest forward P/E has dipped to 7.0 for the first time in 12 months but remains above the 20-year long-term market average. Higher profit expectations were reported by Basic Metals, Chemicals and Mining companies, and if this trend continues we estimate demand for shares in these sectors will rise in the next Iranian cal- endar year. As mentioned, this decline in P/E ratios will correct the market valuation back towards its long-term values.

Inflation moves above 10% Consumer prices rose 9.6% in January and 10.6% in February 2017 compared with the same periods a year ago. This upward trend has gathered pace in the last months of the Iranian calendar year 1395, driven by a surge in spending by families and increased demand for consumer goods in the run up to the Nowruz holiday period.

1 Statistics on sectors’ performance are based on the Iranian calendar month “Bahman 1395” which is between January 20 and February 18.

5 Iran Investment Monthly Market Overview Sector Insight March 2017 - Volume 11, No 125

Sector Insight

Steel Sector In 2015, Iran ranked 14th in terms of global production, supplying 1% of world output. From current production levels of 16 million tons per year, Iran’s strategic plan is an ambitious target of 55 million tons by 2025. Steel pro- duction grew by an annual average of 6% from 2005 to 2014.

Global 1,670 China 823 Global Steel Production Breakdown Million Tons

Iran Middle East 16 30

Countries with oil and gas resources use the method due to their low energy costs. In 2014, Iran used this process for some 83% of its steel output. The major manufacturers are large publicly listed companies operating under the supervision of the Iranian Mines & Mining Industries Development & Renovation Organization (IMIDRO), such as Steel, Khuzestan Steel, Iran National Steel Industrial Group (INSIG) and Steel Company. These companies are currently producing more than 92% of total steel output in the country.

Currently, Isfahan Steel is the only major steel producer using the oxygen converter process. The availability of key manufacturing elements such as labour, raw materials and energy at relatively low costs was the main factor in driving the Iranian authorities to develop the steel industry over the past 40 years. Iran has the world’s 10th largest reserves of iron ore (1% of total global reserves) and the largest gas reserves (18% of total global reserves). But only a small proportion of production is exported due to high demand for steel products from the domestic market.

Recent Updates & Developments

• In its budget for the FY ending 19 March 2018, Alloy Steel forecast an EPS of IRR 243 which would rep- resent an 85% rise compared to IRR 131 realized in the last financial year. • According to the European Steel Association, Iran’s steel exports to Europe grew significantly in 2016 and have increased by 800% since 2013. The Association said Iran was the third biggest exporter to Europe after China and India in 2016. • In an attempt to increase Iran’s production of steel products to 55 million tons per year, a preliminary agreement was signed between the Industrial Development and Renovation Organization (IDRO) and one of the largest trading enterprises of Japan, Sojitz Corporation; its final agreement is expected to be signed within 2 months.

Source: Tehran Stock Exchange, BP Statistical Review of World Energy, Company Report, Turquoise Partners

6 Iran Investment Monthly Market Overview Sector Insight March 2017 - Volume 11, No 125

Top TSE Sector Market Capitalization (%) - February 2017

5.00% Automotive 8.50% Telecommunications 10.40% 6.04% Basic Metals Refined Petroleum

8.50% 6.10% 5.00% 10.40% 20.60% 5.60% 27.10% 9.70% 6.70%

9.70% Monetary Intermediation 5.60% 20.60% Metal Ores Mining Chemicals 6.70% 27.10% Diversified Industrials Other

TSE & Major Steel Producers Performance (Index re-based to 100 in US$ terms) Khuzestan Steel Company TSE Overall Index Isfahan Mobarakeh Steel Company Re-based to 100 in US$

7 Iran Investment Monthly Market Overview Sector Insight March 2017 - Volume 11, No 125

Best Performing & Under-performing Sectors - February 2017

43.8 Mining 14.0 Machinery & Electric Equipment 11.4 Leather Production & Products Machinery & Equipment -2.3 % Sector 7.4 Other Financial Services Sugar -3.5 Performance1 6.7 Wooden Products Transportation & Logistics -3.5 Automotive -3.9 Textile -6.2

15.5 Motor Vehicles & Auto Parts 15.1 Electric Machinery & Apparatus

12.8 Sugar & By-products Best Performing Sectors Banks 6.5 12.6 Ceramic & Tiles Other Non‐metallic Mineral Products 6.2 P/E 11.3 Refined Petroleum Products Chemical & By-products 5.8 Financial Services 5.7 Telecommunications 4.7

641.8 Banks2

Under- Performing Sectors 493.3 Pharmaceuticals3 123.7 Insurance & Pension Funds Cement, Lime & Plaster -19.0% 100.6 Transportation & Storage Ceramic & Tiles -21.6% % Trading Value4 90.7 Machinery & Equipment Other Non-metallic Mineral Products -24.2% Refined Petroleum Products & Nuclear Fuel -39.6% Investment Companies-69.6%

Source: Tehran Stock Exchange, Note: Sectors with more than 5 companies included (exp. Telecommunication) 1Growth of sector’s index month on month in IRR term. 2Banks trading activity increased from 9 b$ in January 2017 to 65 b$ in February 2017. 3Pharmaceutical sector trading activity increased from 9 b$ in January 2017 to 55 b$ in February 2017. 4Growth of trading volume month on month in US$ term.

8 Iran Investment Monthly Market Overview Company Overview March 2017 - Volume 11, No 125

Company Overview Mobarakeh Steel Company Activity: Steel Production

Price (IRR) 1,412 Date: 2/28/2017 52 wk range* (IRR) 1,247-1,412 Official USD-IRR 32,565 Ticker FOLD Market USD-IRR* 37,800 Industry Basic Metals * This exchange rate has been used in this report to convert figures from IRR to US$. It should be noted that this exchange rate is subject to fluctuation Market TSE** * Adjusted closing price range **Tehran Stock Exchange Performance TSE & Mobarakeh Steel Co. Share Price Index (in US$) Stock Data* Market cap (m$) 2,765 Mobarakeh Shares outstanding (b shares) 75 TSE Free float 22% Financial year end 20-Mar Avg daily value traded** (m$) 0.86 Avg daily volume traded (m shares) 23.94 Forward P/E 5.51

* All figures in US$ are converted from IRR at the free market rate Re-based to100, adjusted for dividends and share capital increases ** Average approximate daily values taken over a period of 12 months

Key Data* (Million USD) 2016E** 2015A** 2014A** Highlights Revenue 2,503 2,953 2,816 • Largest producer of hot-and cold-rolled, as well as galvanized, steel in Net Profit 297 688 894 Iran. EPS (Cents) 0.4 1.38 2.5 • Major supplier to the construction and automotive industries. * All figures in US$ are converted from IRR at the official rate • Mobarakeh Steel holds 28% of the country’s total steel production op- erational capacity by producing 6.8 million tons/year. Key Ratios • They have large stakes in Iran’s largest iron ore companies, Chadormalu 2015E** 2014A** 2013A** and Golgohar. The company has invested $400 million in upstream P/B 1.1 2.2 2.1 production facilities. P/Sales 0.9 1.6 1.6 • Mobarakeh Steel has 95% ownership in Hormozgan Steel Company, Debt/Equity 1.14 1.07 1.1 which has a capacity of 1.5 million tons per annum. Hormozgan Steel also enjoys an advantageous location for exports as it is close to the ROE 30% 49% 60% Persian Gulf. ** Gregorian year stated is the year during which the company’s fiscal year comes to an end on March 20th.

Company Information

Mobarakeh Steel Company, one of the largest industrial complexes in the country, Major Shareholders started its operations in 1991 with a nominal capacity of 2.4 million tons per annum. Provincial Inv. Companies (Justice Shares) 19.3% Mobarakeh Steel is the largest steel producer in Middle East and North Africa region. The company produces more than 50% of Iran’s steel and operates in seven industrial IMIDRO (Iranian Mines & Mining Ind. Dev, & 17.2% complexes. Renov. Org.) Sadr Tamin Investment Co. 9.5% Address: No. 2, Gol Azin Alley, Kouhestan St., Ketab Sq., Sa’adat Abad, Tehran, Iran Telephone: +98 (31) 5273 3333 Refah Kargaran Bank 2.8% Website: www.msc.ir Tejarat Bank 3.2%

Source: Firouzeh Asia Brokerage, Turquoise Partners 9 Iran Investment Monthly Market Overview Market Snapshot March 2017 - Volume 11, No 125

Market Snapshot - February 2017 Iran & Regional Markets Iran: A 20 Year Snapshot, Asset Class Returns in US$ (%) P/E Multiple Comparison Far outliers GOLD Near outliers MSCI Morocco 20.8 Kuwait 18.7 Median Qatar 15.0 Mean Shade: 95% confidence PROPERTY MSCI Arabian Markets 14.5 MSCI GCC Countries 14.5 Near outliers Far outliers MSCI Egypt 14.9 TEDPIX Saudi Arabia 14.5 UAE 10.5 Returns in US$ (%) -40 -20 0 20 40 60 80 100 120 140 Iran 6.9

TEDPIX Tehran Exchange Dividend Price Index Turquoise Iran Fund 5.4 All figures in US$ are converted from IRR at the free market rate Sub Fund B/C, as of ending February 2017

Iran & International Markets

3 4 Tehran Stock Exchange MSCI Emerging Markets MSCI Frontier Markets

Average P/E Average P/E Average P/E 6.9 15.11 13.8 1 Annual Performance in $ Annual Performance in $ Annual Performance in $ -8.7% 32.4% 16.3% Annualized 10 Year in $ 2 Annualized 10 Year in $ Annualized 10 Year in $ 9.7% 5.1% 1.9%

20.6 Chemicals 24.4 Financial Sector 44.0 Financials 10.4 Basic Metals 23.9 Information Technology 13.7 Telecom. Services 9.7 Monetary Intermediation 10.3 Consumer Dis. 9.0 Energy 8.5 Telecommunications 7.6 Materials 8.8 Consumer Staples 6.7 Diversified Ind. Holdings 7.4 Energy 7.0 Materials

Sector Breakdown (%) 44.1 Others Sector Breakdown (%) 26.4 Others Sector Breakdown (%) 17.5 Others

1.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) performance calculated in US$ for the Period of February 2016 to February 2017 2.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index)10 year annualized performance calculated in US$ 3.MSCI Emerging Markets Index (US$) - February 2017 4.MSCI Frontier Markets Index (US$) - February 2017 Source: Tehran Stock Exchange - Central Bank of Iran - MSCI Inc., Kamcoonline. All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

10 Iran Investment Monthly Market Overview TSE & Junior Market Performance March 2017 - Volume 11, No 125

TSE & Junior Market Performance Tehran Stock Exchange: TEDPIX*,February 2017

Re-based,to 100 in US$ Re-based in US$

Volume million shares Million Shares

Source: Tehran Stock Exchange *TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

Iran Farabourse (Junior Market): IFX*, February 2017

Re-based,to 100 in US$ Re-based in US$

Volume million shares Million Shares

Source: Iran Farabourse Company *Iran Farabourse (Junior Market) Overall Index (Total Return) All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

11 Iran Investment Monthly Market Overview Top Ranked Companies March 2017 - Volume 11, No 125

Top Ranked Companies - February 2017 Turnover Value* % Total Turnover (million US$)

SAIPA is the second largest Iranian vehicle manufacturer. SAIPA Investment SAIPA Group 0.7% Group is the investment arm of SAIPA Group and specialises in managing the 8.0 financial assets of the group in the public markets.

The Asan Pardakht Persian branded ‘AP’, inaugurated its activity in 2009 Asan Pardakht Co. 0.5% in the field of electronic payment card systems. The company devel- 5.8 oped its activity in selling mobile recharge, air time and bill payment services. AP is one of the initial 12 electronic payment service pro- viders (PSP) in Iran.

Founded in 1966 as Khawar Industrial Group, the company started production by assembling one truck a day. In 1999 Indus- Iran Khodro 0.4% trial Group merged its bus and minibus production lines with Khawar 5.2 Industrial Group and the new company, Iran Khodro Diesel Compa- Diesel Co. ny, was formed as a public joint stock company. Today Iran Khodro Diesel Company is a leading commercial vehicle manufacturer in Iran and the Middle East.

Tejarat Bank was founded in 1979 after implementation Tejarat Bank of the Banks Nationalization Act and the subsequent 0.4%

Top 5 Traded by Value Traded 5 Top integration of five domestic commercial banks and six 4.9 multi-national banks. In 2009, the bank was partially privatized, with the Iranian state remaining as a mi- nority shareholder.

The Razi Glass Group was founded in 1993 to produce pharmaceutical bottles for the local Razi Glass Group 0.3% market. The group has grown to become one 3.7 of the leading manufacturers of packaging and pharmaceutical glass products, supply- ing both national and international food and drug markets. Market Cap % Total Market Cap. (million US$) Persian Gulf PGPIC was established in the first phase of the privatization of Iran’s pet- Petrochemical 6.6% rochemical sector when the National Petrochemical Company (NPC) trans- 6,609 ferred its shares in a number of petrochemical companies to PGPIC, pav- Industry ing the way for the formation of Iran’s first private petrochemical holding company. NPC has continued in its role as a policy making body.

The Mobile Telecommunication Company of Iran, also known as Mobile Communi- MCI, is the country’s largest mobile phone operator with a market cation Company 4.3% share of over 54%. The first SIM card was issued in Iran by MCI in 4,321 1994 and a network for 9,200 mobile phone numbers was created. of Iran The company currently has more than 57 million clients providing a full range of services including 3G and 4G.

The Telephone Company of Iran was established in 1931 Iran Telecommuni- when the Iranian government purchased and combined 4.2% small scale telephone companies. With technological ad- cation Company 4,226 vancements throughout the 50’s-70’s, the Telecommuni- cation Company of Iran was established in 1971 as the only responsible administrator for the country’s entire telecommunication infrastructure. Mobarakeh Steel Company, one of the largest industrial complexes in the country, started its Mobarakeh Steel 3.3% operations in 1991 with a nominal capacity of Manufacturing 3,268 2.4 million tons per annum. Mobarakeh Steel is the largest steel producer in the Middle East and North Africa region.

Top 5 by Market Capitalization Top Ghadir Investment Co. was established in 1992 Ghadir Investment as a public joint stock company. In 1995, this Holding 2.9% company was listed on the TSE. Today, Ghadir 2,884 Investment Co. is one of the largest TSE list- ed investment companies which, through its 7 holdings and 139 subsidiaries, operates in various sectors.

Source: Tehran Stock Exchange, Firouzeh Asia Brokerage. All figures in US$ are converted from IRR at the official rate of 32,336 IRR. * Weekly data as of trading week ending 23 February 2017. 12 Iran Investment Monthly Market Overview TSE Statistics March 2017 - Volume 11, No 125

TSE Statistics - Week Ending 23 Feb 2017* TSE Top 5 Performers TSE Top 5 Under-performers Close US$ Close US$ Company 23-February-17 % Change Company 23-February-17 % Change Azarbaijan Investment Dev. Co. 11.3 37.2 Glucosan Co. 94 -10

Persian Gulf Transportation Co. 12.0 23.2 Iran Mineral Processing Co. 28.3 -9.9

Pars Switch Co. 30.6 22.0 Bama Mining & Industrial Co. 19 -7.8

Niroo Investment Co. 4.9 21.9 Mellat Bank 2.9 -6.5

Data Processing Iran 8.0 18.3 Iran Zinc Mines Dev. Co. 7 -6.3

Index Information Close Index Info 23-February-17 % 21 March 16 TSE Overall Index 77,847 -3.0

TSE30 3,137 -7.2

Iran Farabourse Overall Index 867 7.6

Week Ending Week Ending Description 23-February-17 16-January-17 Market P/E 7.3 7.3

Trade Statistics Week Ending % Change % Change % Change Average Daily Trade Volume 23-February-17 Weekly Monthly Quarterly TSE Average Daily Trade Vol­ume (Million US$) 50.5 -43% 71% 8% IFB Average Daily Traded Vol­ume (Million US$) 34.7 -75% -18% -8%

FX Movements - February 2017 Market Rate Official Rate

-0.60%** 0.11%** IRR per US$ IRR per US$

Source: Firouzeh Asia Brokerage, Bonbast All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated. * Weekly data as of trading week ending 23 February 2017. ** 28 Feb 2017 Vs. 31 Jan 2017, market exchange rates

13 Iran Investment Monthly Market Overview Iran’s Fixed Income Market March 2017 - Volume 11, No 125

Iran’s Fixed Income Market

Background • In 1994, and in line with plans to develop financial products that could assist with the financing of infrastructure projects, the Tehran Municipality was given permission to issue the first debt papers in the post-revolution era using the structure of ‘participation notes’ (Musharakah Papers). • Between 1994 and 2009, the government ministries and municipalities financed their projects through issuing fixed income instruments (such as certificate of deposits, participation papers) with the guarantee of state banks. • These papers were issued in bank branches and were sold to bank customers. • The banking sector used to dominate the funding of investment projects and working capital finance for corporates. • Since 2009, a variety of fixed income instruments have been introduced to public investors and have gradually started to be traded on the Tehran Stock Exchange and Iran Farabourse. • Over the past eight years, due to the tightening of economic sanctions, a lack of foreign funding and inefficiencies in the traditional banking system have put significant pressure on the commercial sector, especially within indus- tries with a high working capital requirement. • In an attempt to increase liquidity, the SEO, the principal financial regulatory body in Iran, has introduced new reg- ulations permitting methods of financing via the equity and debt markets, similar to those in other Islamic bourses.

Period • The tenor of these fixed income instruments ranges between 1 to 5 years.

• The yields on these bonds currently range between 20 - 24% Structure & • Coupons are paid on a semi-annual, quarterly or monthly basis Rates Mechanism • The coupons are collected and distributed through the Central Securi- ties Depository of Iran directly to the investor’s bank account.

• The principal and interest of these notes are guaranteed by a bank, government entity Mechanism or a money and credit institution. • These entities undertake the responsibility of paying the interest and the principal in case the issuer is unable to do so. • This means that the debt owner is essentially taking on the risk of these guarantors, where in the case of T-Bills, this is often the risk of the Treasury or Central Bank of Iran.

14 Iran Investment Monthly Market Overview Iran’s Fixed Income Market March 2017 - Volume 11, No 125

Iran Debt Securities Market - February 2017

Tehran Stock Tehran Stock Tehran Stock Exchange Exchange Exchange

1.7 Iran Farabourse 6.6 Iran Farabourse 248,909 Iran Farabourse (Junior Market) (Junior Market) (Junior Market) Market Value Average Daily Trading Average Daily Trading (billion US$) 4.1 Value (million US$) 60.9 Volume (bonds) 2,355,134

Value & Breakdown of Sukuk Issuance in Iranian Capital Market, 2015 (billion US$)

0.14

0.26

0.28

0.31

1.45

1.84

Billion US$

Value & Breakdown of Sukuk Issuance in Iranian Capital Market, 2016/17* (billion US$)

0.26

0.45

0.55

0.55

0.66

0.86

0.96

3.60

Billion US$

* In 1395 Iranian calender year (March 2016 to end of February 2017) 15 All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated. Iran Investment Monthly Market Overview Iran’s Fixed Income Market March 2017 - Volume 11, No 125

Annualized Return for a Selected T-bill1 Snapshot of the Highest Yielding Debt Securtites1 - February 2017

Issuer Type YTM (p.a.) Gol-E-Gohar Participation Bond 28.26% Compound Return (%) 25.7% Melli Development Group Istisna Sukuk 25.07% Mashhad Municipal Participation Bond (Musharaka) 24.85%

Simple Return (%) National Iranian Oil Company Participation Bond (Musharaka) 24.33% 24.5% National Iranian Oil Company Participation Bond (Musharaka) 24.12% I.R. Of Iran's Gov Lease Note 23.84% Bank Deposit, Rayan Saipa Leasing Participation Bond 23.79% Equivalent (%) 23.1% Mahan Air Lease Note Lease Note 23.42% Rightel Lease Note 23.41% Kordestan Cement Participation Bond 23.24%

1Please note that most T-bills matures in less than one year. 1 This snapshot is a selection of the highest yielding securities with minimum one year maturity in Iran’s debt markets and should not be considered as a solicitation or recommendation by Turquoise Partners.

GCC & Iran Sovereign Positions - 2016/17 Iran GCC MENA Debt Instrument Issuance Debt Instrument Issuance Debt Instrument Issuance 7.9 billion US$ 66.5 billion US$ 81.6 billion US$ Sovereign Sovereign Sovereign* 60% 45% 69% Corporate Corporate Corporate* 40% 55% 31%

59.6% Sovereign 45.0% Sovereign 58.7% Govt. Institutions 12.2% Energy 30.0% Banks 11.7% Banking 8.4% Banks & Municipalities 5.0% Power 2.7% Financial 3.3% Real Estate 5.0% Real Estate 2.5% Utility 16.5% Other 5.0% Telecom 0.2% Leasing

* MENA Bonds Source: Tehran Stock Exchange - Iran Farabourse - Kamcoonline. All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

16 Iran Investment Monthly Market Overview Iran’s Fixed Income Market March 2017 - Volume 11, No 125

Current Snapshot of Funding Sources • There are 71 different fixed income instruments listed on the Iranian securities markets. • Of these 70, 22 are listed on the Tehran Stock Exchange while the remainder are listed on the Iran Farabourse. • Both public and private companies can issue these notes. At the moment, these notes have been issued by government entities as well as corporations.

Turquoise Partners Sovereign Bond Fund • In order to take advantage of this attractive opportunity set, Turquoise Partners launched Iran’s 1st dedicated Sovereign Bond Fund in early 2017. • Given the idiosyncratic nature of the yield curve in Iran’s nascent fixed income market, the Fund is actively managed and invests in a range of Iran’s listed sovereign-backed fixed income assets in order to deliver stable and absolute returns over time. • The fund will seek to return 15-20% p.a. net of fees, in local currency terms.

Please contact the Turquoise team for additional information on this opportunity.

17 Iran Investment Monthly Economic Review Latest Updates March 2017 - Volume 11, No 125

Latest Updates

Reconnecting Commercial Ties with Global Financial Banks The latest International Monetary Fund (IMF) staff visit to Iran in February 2017 resulted in a detailed assessment of the current status of the Iranian banking and financial system in coordination with the Central Bank of Iran (CBI). According to the latest IMF country report and the CBI, a total of 238 small-and medium-sized international banks across Europe, MENA region and East Asia have established correspondent relationships with Iranian banks. The SWIFT system has been reconnected and these correspondent banks have facilities for opening accounts, letters of credit and currency transfers. However, the lack of reconnection with Tier 1 banks is identified as the foremost barrier for trade and invest- ment activities to flourish in Iran, especially those business developments requiring a financing structure on a much larger scale. The ambiguity of certain remaining sanctions and the complexity of the regulatory environment impose significant challenges to reconnecting Iranian banks with global non-US banks in the post-sanctions environment.

Current Monetary Policy Framework • As a result of structural issues in the banking system, the number of banks using the CBI’s “overdraft facility” at the penalty rate of 34% grew considerably in 2016. • The CBI is able to sterilize excess liquidity by issuing participation papers or special certificate deposits that require Monetary & Credit Council (MCC) approval. • Under the current monetary framework, the only available lending rate to banks is the CBI overdraft facility rate of 34%, whereas specific funding facilities and policy rates in the form of directed credit schemes need to be devel- oped. • Once the foreign exchange market is unified, the CBI’s intention is to move to a managed float system which ena- bles a market-based and modern exchange rate mechanism with higher flexibility. The CBI authorities continue to work on the unification of exchange rates by allocating more goods and commodities to be imported using the free market exchange rate rather than the subsidized official rate. • The CBI started to increase liquidity to the financial system through the interbank market to bring the interbank market (lending) rate to around 18% in December 2016.

Apart from the CBI bill which aims to modernize the monetary policy framework and is making progress towards be- ing enforced, there are number of domestic reforms that need to be considered by the CBI. These monetary reforms are needed to support the transition to a market-based monetary policy framework. One of the key issues addressed by both the CBI and IMF was the issue of liquidity pressure stemming from distressed banks. Recapitalization and restructuring of troubled banks to sustain financial stability and ease liquidity pressure remains a key issues for the authorities. These banks are pushing deposit rates higher than the agreed rates and this will eventually damage the balance sheet of healthier banks. The IMF and CBI authorities agreed to construct a Financial Condition Index (FCI) for better monitoring purposes based on the availability of Iranian economic data which could be measured by money growth (M2; y/y) as a measure of liquidity, stock market performance as a measure of household wealth, real lending rates for banks and a real effective exchange rate (REER). The FCI is constructed by applying a weighting to each of the four variables. Liquidity growth has the highest weight followed by REER and the real lending rate. Due to high volatility, the equity market has the lowest weight in the FCI. A FCI value above zero implies a tightening in financial conditions is required and vice versa (figures next page).

18 Iran Investment Monthly Economic Review Latest Updates March 2017 - Volume 11, No 125

Iranian Economy Financial Conditions Index Developed by IMF & CBI Loosening - Tightening

Source: Iranian Authorities and IMF Staff Calculations.

Iran’s Financial Conditions Index & Non-oil GDP Non-oil GDP Lag(1), yoy FCI, reversed - rths

The model developed by IMF & CBI author- ities shows that loosening (tightening) of the Financial Condition Index (FCI) is followed by increasing (decreasing) non-oil activity with one quarter lag. Growth (%) Tightening - Loosening Tightening

Source: Iranian Authorities and IMF Staff Calculations.

19 Iran Investment Monthly Economic Review Macroeconomic Data March 2017 - Volume 11, No 125

Macroeconomic Data Iran Economic Data Calendar Iran Macroeconomic Forecast Gross Domestic Product Unit 2016/ 17 2017/ 18 2018/ 19 Central Bank of Iran New issue of “Selected Eco- Nominal GDP (Billion US$) 412 438 471 nomic Indicators” for Dey 1395 (December 2016-January 2017) Real GDP Growth (%) 6.6 3.3 4.1 Released: March 13, 2017 (Million barrels Crude Oil Export per day) 2.5 2.5 2.7 IMF Executive Board Concludes GDP PPP Per Capita (US$) 18,136 19,050 20,080 2016 Article IV Consultation with the Islamic Republic of Iran Private Consumption (Billion US$) 194* 214* 237* Released: March 10, 2017 Fiscal Balance Unit 2016/ 17 2017/ 18 2018/ 19

IMF (% GDP at Current Account 4.2 3.3 3.1 Country Report No. 17/62 market prices)

Released: February 27, 2017 Overall Fiscal Balance (% GDP) -1.1 - 1.0 - 0.7

Fiscal Tax Revenue (% GDP) 7.2 7.6 7.7

General Government Gross Debt (% GDP) 14.9 15.0 15.0

Monetary & Banking Unit 2016/ 17 2017/ 18 2018/ 19 Sector Indicators

Inflation (%) 9.0 11.0 6.2

Broad Money Growth (M2) (%) 28.6 15.4 13.7

Credit to Private Sector Growth (%) 14.4 17.5 16.0

Net Foreign Assets (Billion US$) 119 136 152

External Sector Unit 2016/ 17 2017/ 18 2018/ 19

Total Export (Billion US$) 81.9 94.8 102.0

Oil & Gas Export (Billion US$) 48.6 59.8 65.3

Import (Billion US$) 50.0 67.0 70.1

Trade Balance (Billion US$) 31.9 27.8 31.9

Source: International Monetary Fund - World Economic Outlook, October 2016 - IMF Staff Visit Article IV Mission to Islamic Republic of Iran - Central Bank of Iran - Economic Trends No. 83 Fourth Quarter 1394 Iranian calendar year Central Bank of Iran - New issue of “Selected Economic Indicators”. Mordad 1395 Iranian calendar year All figures in US$ are converted from IRR at the free market rate

20 Iran Investment Monthly Turquoise Partners About Turquoise Partners March 2017 - Volume 11, No 125

About Turquoise Partners

Since 2005

Turquoise is a leading investment group based in Iran that offers a full range of financial services to select investors looking at the Iranian market. The group operates across four core areas: investment management, brokerage, corporate advisory and pri- vate equity/venture capital. Turquoise also manages more than 90 per cent of all existing foreign portfo- lio investments on the Tehran Stock Exchange. Its asset management division offers an equity fund tailored specifically to foreign investors and invests exclusively in the Iranian securities markets. The fund is jointly advised by Turquoise Partners and emerging market specialist Charlemagne Capital.

Firouzeh Asia, the group’s brokerage division, is the market leader in foreign investment and execution, and the provision of English language market research, news and analysis. In addition, Turquoise is the only Iranian financial services group to have a significant track record in private equity investing and currently manages two listed private equity investment vehicles.

Turquoise’s corporate finance team offers a full suite of advisory services including mergers and acquisi- tions, restructuring, market entry and capital raising for international clients seeking to enter the Iranian market as well as leading Iranian companies.

The group produces a widely read monthly electronic newsletter «Iran Investment Monthly» which provides the latest news on Iran’s financial market and econo- my in English.

21 Iran Investment Monthly Turquoise Partners About Turquoise Partners March 2017 - Volume 11, No 125

Asset Management

Turquoise Asset Management has established an out- • In early 2017, Turquoise Partners launched the standing reputation and robust performance record in 1st dedicated Sovereign Bond Fund with a tar- the Iranian equities market. The group is known as get return of 15-20% in local currency terms. The

a leading investment firm with a strategy of value in- Turquoise Partners Sovereign Bond Fund is an vesting and long term capital growth; it specializes actively managed strategy with low volatility in attracting foreign investors to invest in one of the that invests in a range of Iran’s sovereign back most undervalued financial markets in the world. fixed income assets with the objective of de- Our investment team is comprised of experienced livering stable and absolute returns over time. professionals with more than 20 years experience The fund adopts a concentrated approach, across international and domestic financial markets. utilizing a core portfolio of Iranian Govern- Our investment decisions are guided and supported ment bonds backed by the Central Bank of by our investment and advisory committees, access Iran as the ultimate guarantor. Sovereign to detailed market information, and our on-the-ground Fixed Income securities include; Islamic Trea- presence in Iranian financial markets over the last 10 sury Bills, Ijarah Sukuk, Musharakah Sukuk years. Our commitment to maintaining high standards & Murabaha Sukuks. Investments within the along with our long term growth strategy has led to us portfolio are actively managed in an attempt to

gain- ensure we are invested in the most attractive ing an unparalleled reputation as the leading asset fixed income government backed securities in

management firm inside Iran. order to maximize returns for our investors.

Asset Management Division: Products & Services • Having operated in the Iranian market for over a decade, Turquoise has accumulated a Turquoise Partners launched Iran’s f irst equity first rate database of market data and infor- fund in May 2006, tailored for foreign investors. mation. The firm’s electronic newsletter, Iran With over 10 years of track record, the fund has Investment Monthly, has been consistently grown to be the largest foreign investor on the published for over 10 years and has a wide Iranian capital markets. The investor base of this readership of over 3,000 investors and Iran

fund is almost all European with a mix of institu- enthusiasts. This newsletter and other regular tional, family offices, high net worth individuals research products of the firm, are the only free

and private professional investors. source of English language research on the Iranian economy and the capital markets. • In 2015, Turquoise Partners and Charlem- agne Capital launched the first EU regulated alternative investment fund for Iran. This fund is now operational and is open to global in- vestors aiming to get exposure to the Iranian market.

For more information about products and services offered by Turquoise Partners please contact: [email protected]

22 Iran Investment Monthly Turquoise Partners About Turquoise Partners March 2017 - Volume 11, No 125

Corporate Advisory Brokerage

Turquoise is the leading investment group based in Firouzeh Asia, the brokerage arm of Turquoise Part- Tehran. We have 10 years of transaction experience ners, is the leading broker offering access to Iranian on the ground in Iran and an extensive network of securities markets for international investors. Over partnerships and collaborations with international in- the years, Firouzeh Asia, as a fully licensed brokerage vestors and leading global advisory firms. company under the Securities and Exchange Orga- nization of Iran, has been a pioneer in servicing in- Our corporate finance team is comprised of senior ternational investors as well as offering professional Iranian and international bankers based locally and services to its domestic clients. Firouzeh Asia has a in London. We deliver mergers and acquisition ad- presence in four major Iranian cities: Tehran, Isfahan, visory, restructuring, market entry and capital rais- Rasht and Yazd. ing services to international clients seeking to enter the Iranian market. We also assist Iranian domestic Brokerage Division: Products & Services corporates to access global markets through strate- gic partnerships. We seek to combine in-depth local • Securities Dealing knowledge and access with international investment Online trading platform with live market data banking best practice. for all customers Telephone orders In cooperation with Turquoise’s market leading eq- Block trades uity brokerage, we deliver capital markets services, Dedicated trading station for large customers including public markets capital raising and structured products, to Iranian corporate clients and foreign and • Managed Accounts domestic institutional investors. Investment Advice (institutional clients only)

Corporate Advisory Division: Products & Services • Capital Market Advisory Listing and IPO advisory • Advisory Reports: in-depth research reports tailored Fixed income securities issuance to the corporate advisory division’s policies, and placement providing due diligence research on specific list- ed or non-listed companies and their sectors’ out- • Index ETF looks, in English. Launch of Iran’s first index-linked ETF (TSE- 30 ILETF) in January 2015 Client Portfolio Management

• Equity Research Report: an in-depth research report tailored to the Turquoise Investment Strategy which provides the latest develop- ments in a selected number of listed compa- nies (including their sectors), in English.

For more information about products and services offered by Turquoise Partners please contact: [email protected]

23 Iran Investment Monthly Turquoise Partners About Turquoise Partners March 2017 - Volume 11, No 125

Private Equity

Turquoise is one of the only Iranian financial firm with a significant track record in private equity investing. Our investment team has been working since 2005 and has invested on its own behalf, with co-invest- ment partners, and as a manager in the most attrac- tive growth sectors of the Iranian economy. Trans- actions have included private investments in FMCG, financial services, real estate and technology-based venture capital.

Our private equity capabilities include experience in all phases of the investment process including mar- ket analysis, due diligence of investees in the Iranian environment, interface with regulators and other gov- ernmental authorities, investment restructuring, exit management and undertaking all the reporting and investment monitoring expected of a private equity fiduciary.

Private Equity Division: Products & Services

• The Turquoise Group has made private eq- uity investments both on its own and with partners in a variety of sectors including con- sumer, financials, technology and real estate amongst others.

• Advisory Reports: in-depth research reports tailored to the corporate advisory division’s policies, providing due diligence research on specific listed or non-listed companies and their sectors’ outlooks, in English.

For more information about products and services offered by Turquoise Partners please contact: [email protected]

24 Iran Investment Monthly Turquoise Partners News & Views March 2017 - Volume 11, No 125

News & Views

Recent Research Turquoise in Media

Iran Daily Market Update – February 2017 March 11, 2016 - Financial Times March 18, 2017 “Is Iran really one of the world’s best investments” March 15, 2017 March 14, 2017 Read the full article March 13, 2017 March 12, 2017 March 10, 2016 - Bloomberg Television “Post-Sanctions Iran Offering Investing Opportunities”

Iran Weekly Market Update – February 2017 Read the full article March 16, 2017 March 09, 2017 February 28, 216 - Reuters March 02, 2017 “Reformist gains in Iran elections clear way for busi- February 23, 2017 ness boom” February 16, 2017 Read the full article

February 16, 2016 - Bloomberg “Iran’s 20% Yields Tempt Charlemagne as Tehran Returns From Cold”

Read the full article

February 14, 2016 - Reuters “Defying global slump, Iran stocks soar on sanctions relief”

Read the full article

January 28, 2016 - Euromoney “Sanction removal unveils Iran currency hopes”

Read the full article

January 23, 2016 - International Business Times “The Iran rush: European and Asian firms on starting line as sanctions are lifted”

Read the full article

25 Iran Investment Monthly March 2017 - Volume 11, No 125

Turquoise Partners No. 10. 7th St. Khaled Eslamboli (Vozara) Ave. Tehran, Iran Tel: + 98 21887 26 681 Fax: +98 21 881 07 746 Email: [email protected]

Firouzeh Asia Brokerage 5th Floor No. 11, Mirza Hassani St. Ghaem Magham Farahani Ave. Tehran, Iran Tel: +98 21 881 06 106 Fax: +98 21 881 07 746 Email: [email protected]

DISCLAIMER This document has been issued by Turquoise Partners for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell any security or other financial instrument or to any particular category of investors in jurisdictions in which such an offer or solicitation to the public or to any particular category of investors is illegal. Although the material in this report is based on information that Turquoise Partners considers reliable, Turquoise Partners does not make any warranty or representation (express or implied) in relation to the accuracy, completeness or reliability of the information contained herein. Any opinions expressed herein reflect a judgment at the date of publication and are subject to change. Turquoise Partners accepts no liability whatsoever for any direct, indirect or consequential loss or damage of any kind arising out of the use of all or any of this material. Where Turquoise Partners provides information in the document, it is provided exclusively for information purposes. The information does not constitute any form of recommendation related to the personal circumstances of investors or otherwise, nor does it constitute any specific or general recommendation to buy, hold, or sell financial instruments and does not thus create any relationship between Turquoise Partners and any investor. The document may not include all the up-to-date information required to make investment decisions. Other more accurate and relevant sources of information may exist. Investors should thus diligently inform themselves about the chances and risks of the investments prior to taking investment decisions. In addition to the financial aspects, this should include, in particular, the legal and tax aspects of the investments. It is strongly recommended that any potential investor should contact a financial adviser and, where required, a lawyer or tax adviser. Furthermore, it should also be considered that the future performance of financial instruments and their return cannot be inferred from their past performance. The value of investments may go down as well as up and investors in financial instruments should be capable of bearing a total loss of investment. Neither Turquoise Partners nor any third party content provider shall be liable for any errors, inaccuracy, delay or updating of the published content of the provided document. Turquoise Partners expressly disclaims all warranties as to the accuracy of the content provided, or as to the use of the information for any purpose, as far as legally possible. This material is for the use of intended recipients only and neither the whole nor any part of this material may be duplicated in any form or by any means. Neither should any of this material be redistributed or disclosed to anyone without the prior consent of Turquoise Partners. PERSONS DOMICILED, RESI- DENT OR BASED IN THE UNITED STATES OF AMERICA ITS TERRITORIES OR POSSESSIONS OR WHO MAY OTHERWISE BE CONSIDERED AS UNITED STATES PERSONS, INCLUDING REPRESENTATIVES OF UNITED STATES COMPANIES OR NON-UNITED STATES SUBSIDIARIES OF UNITED STATES COMPANIES SHOULD NOT CARRY OUT ANY ACTION IN BREACH OF U.S. SANCTIONS LAWS.

26 Iran Investment Monthly